The subscription model makes you richer than you think (VB Live)

Subscription business? You’re sitting on a goldmine of customer data. Find out how to use it to optimize acquisition and accelerate business growth, plus tap into the latest research and benchmarks on key subscriber acquisition metrics and more in this VB Live event.

“Thirty-five percent of Fortune 2000 generate revenue via subscriptions,” says Emma Clark, senior project manager at Recurly. “They make up a substantial part of business and consumer purchasing.”

And that doesn’t just apply to SaaS—you’ve got consumer goods, box-of-the-month clubs, streaming media, and a host of Internet of Things applications. And all of it offers predictable revenue, customer loyalty, and most importantly, subscription analytics: the ability to harness a wealth of data for invaluable subscriber insights.

“When we say a wealth of data, we’re talking about three different events in particular,” Clark explains. “We’re talking about customer events, the data produced from billing events, and marketing events. Looking at these events in isolation only really tells you part of the story. The intersection of all three is really where you’re able to make more informed decisions.”

Let’s say you offer a coupon discount on one of your subscription plans. And you’re trying to encourage new customer signups.

The marketing data would point to a measure of success based upon the number of new signups. But that’s only part of the picture. Once you pull in billing data points, you’re then able to look at things like the lifetime value of the subscribers you’ve signed up with the coupon, or the total revenue generated from that campaign.

But finally once you add in customer events, then you’re able to see even more: when did those new signups that started with the coupon churn? Did they stay for a long time, or did they churn after thirty days?

So all of this data combined provides a much better picture enabling you to maximize recurring revenue and customer loyalty, Clark says. “The key point is that it’s not just at purchase point, it’s through the entire lifecycle. And this is something that’s unique to subscriptions.”

But unlike traditional transaction billing models, subscription businesses usually have a much higher and much larger up-front investment to acquire customers.

“To maintain a profitable subscription model, you have to closely monitor engagement and loyalty metrics to make sure you’re hitting your yield and revenue targets — are you getting your payback, essentially,” she says. “And are you accelerating from there to grow more as your lifetime value increases?”

There are quite a few different metrics that you can take a look at, but there are a few that are really relevant for key subscription acquisition and also to measure yield and revenue targets.

Monthly recurring revenue (MMR) is the metric that you’re probably most familiar with — it’s the one that rules them all, since the subscription model is predicated on predictable revenue. It’s not the same as gap revenue, as it doesn’t focus on revenue that’s already recognized. Instead, it’s forward-looking, Clark explains. It looks at revenue momentum, versus looking at the past.

“At any point in time, you should be able to measure your MMR by looking at the charges associated with your currently active subscriptions,” she adds.

The second important KPI is trial conversion rate.

“Trials can be a really valuable acquisition tool,” Clark says. “But how many subscribers convert is only a piece of it.”

You also need to track what happens to those trials after the fact, or the reason why they didn’t convert, as well as why that percentage of customers didn’t convert to paid. Did they cancel during their trial because they weren’t interested, or did they simply churn at the end of their trial when you attempted to collect a payment and the payment failed.

“This indicates to you how you can increase your trial conversion rate by understanding the reason people didn’t convert,” says Clark.

You also need to take a look at the retention and LTV of those subscribers that started with trial versus those that didn’t. This helps you evaluate the effectiveness of your trial and acquiring valuable subscribers.

“It’s great that your trial conversion rate may be 85 percent, but how valuable are those subscribers after they convert to paid?” she says. “How long do they stay with you, how much revenue do they generate for you? What key tools can you use to attract those profitable subscribers?”

It’s all about the plans, the pricing, and your channels, Clark says.

For a deep dive into how to design subscription plans and billing to reduce friction and boost loyalty, how to maximize subscribers and nail incentive pricing, and how to keep your customer acquisition cost in check while nabbing the subscribers with the greatest LTV, don’t miss out on this in-depth VB Live event!